China: Key Industrial Output and Prices Data to Provide Pointers to Policy Measures

A slew of key data pertaining to the Chinese economy will be out in the week to 13 September, providing pointers to policy measures.

Chinese growth has been robust over the recent quarters but has been driven by sector-specific policy boosts by the authorities.

A broadly strong dollar after the sharp drop in the euro has failed to prevent a rally in the yuan, which is now holding near a six-month high, and is in no way supportive of China's trade.

Upcoming data include consumer price inflation, producer price inflation, retail sales, industrial output, urban investment and new loans.

Forecasts show slowing consumer price inflation and retail sales growth, shrinking trade surplus, increasing deflationary pressures in factory gate prices and more downside risks to investments and loan disbursals.

The Chinese National Bureau of Statistics recently said that in late August, out of 50 kinds of important means of production in 24 provinces, the prices of 18 kinds increased and 26 kinds decreased while six were at the same level.

On 1 September, data showed that Chinese official manufacturing PMI slipped to 51.1 for August from 51.7, while analysts had been expecting 51.2. The manufacturing PMI for August estimated by HSBC too has fallen to 50.3 from 51.7.

Domestic demand in China looked more subdued, said Hongbin Qu, HSBC's China economist.

"We think the economy still faces considerable downside risks to growth in the second half of the year, which warrant further policy easing to ensure a steady growth recovery."

China's CPI inflation data for August is due on 11 September. The market consensus is for a slower year-on-year inflation of 2.2% from 2.3% in July.

The PPI data scheduled for the same time may show the index falling 1.2%, steeper than the July drop of 0.9%.

Forecasts for trade data, due on 8 September, show the surplus narrowing to $40.0bn from $47.3bn in August.

On 13 September, data may show Chinese industrial production growth slowed to 8.8% in August from 9.0% in July, on a year-on-year basis.

Similarly, retail sales growth may have dropped to 12.1% from 12.2% and urban investment to 16.9% from 17.0%, as per the market consensus.

Yuan

The Chinese yuan has been holding near a strong medium-term resistance line and its strength could not be curbed by the broad dollar rally that has weakened many of its regional peers of late.

The USD/CNY pair may have failed to break below the 6.13 support, but it is not bouncing back either, indicating the inherent strength of the renminbi, analysts say.

The yuan has rallied more than 1.9% since end-April and hit a fresh six-month high of 6.1346 on Thursday even as the surprise rate cut by the European Central Bank pushed the US dollar sharply higher.

Technically, a decisive break of 6.1335 will open sharper downside targets for the pair, and if so, one has to watch out for levels like 6.1128 and 6.0922 ahead of 6.0627 and 6.0407, this year's lowest, touched in mid-January.